Bitmain could create headaches for NVIDIA, AMD, and Qualcomm

Research firm Bernstein recently published a report on the profitability of Bitmain Technologies, a secretive Chinese company with a huge impact on the bitcoin and cryptocurrency markets.

With estimated 2017 profits ranging from $3 billion to $4 billion, the size and scope of Beijing-based Bitmain is undeniable, with annual net income higher than some major tech players, including Nvidia and AMD. The privately held company, founded five years ago, has expanded its reach into many bitcoin-based markets, but most of its income stems from the development and sale of dedicated cryptocurrency mining hardware.

There is a concern that the sudden introduction of additional companies in the chip-production landscape could alter how other players operate. This includes the ability for Nvidia, AMD, Qualcomm and others to order chip production from popular semiconductor vendors at the necessary prices to remain competitive in their respective markets.

Bitmain makes most of its income through the development of dedicated chips used to mine bitcoin. These ASICs (application-specific integrated circuits) offer better performance and power efficiency than other products such as graphics chips from Nvidia and AMD. The Bitmain chips are then combined into systems called “miners” that can include as many as 250 chips in a single unit. Those are sold to large mining companies or individuals hoping to turn a profit from the speculative cryptocurrency markets for prices ranging from a few hundred to a few thousand dollars apiece.

Bitcoin mining giant

Bernstein estimates that as much as 70%-80% of the dedicated market for bitcoin mining is being addressed by Bitmain and its ASIC sales.

Bitmain has secondary income sources, including running mining pools (where groups of bitcoin miners share the workload of computing in order to turn a profit sooner) and cloud-based mining services where customers can simply rent mining hardware that exists in a dedicated server location. This enables people to attempt to profit from mining without the expense of buying hardware directly.

A Bitmain Antminer

The chip developer and mining hardware giant has key advantages for revenue growth and stability, despite the volatility of the cryptocurrency market. When Bitmain designs a new ASIC that can address a new currency or algorithm, or run a current coin algorithm faster than was previously possible, it can choose to build its Antminers (the brand for these units) and operate them at its own server farms, squeezing the profitability and advantage the faster chips offer on the bitcoin market before anyone else in the ecosystem has access to them.

As the difficulty of mining increases (which occurs as higher-performance mining options are released, lowering the profitability of older hardware), Bitmain can then start selling the new chips and associated Antminers to customers, moving revenue from mining directly to sales of mining hardware.

This pattern can be repeated for as long as chip development continues, giving Bitmain a tremendous amount of flexibility to balance revenue from different streams.

Imagine a situation where one of the major graphics chip vendors exclusively used its latest graphics chips for its own services like cloud-compute, crypto-mining and server-based rendering and how much more valuable those resources would be — that is the power that Bitmain holds over the bitcoin market.

Competing for foundry business

Clearly Bitmain is big business, and its impact goes well beyond just the bitcoin space. Because its dominance for miners depends on new hardware designs and chip production, where performance and power efficiency are critical to building profitable hardware, it competes for the same foundry business as other fabless semiconductor giants. That includes Apple, Nvidia, Qualcomm, AMD and others.

Companies that build ASICs as part of their business model, including Samsung, TSMC, GlobalFoundries and even Intel to a small degree, look for customers willing to bid the most for the limited availability of production inventory. Bitmain is not restricted to a customer base that is cost-sensitive — instead, its customers are profit-sensitive. As long as the crypto market remains profitable, Bitmain can absorb the added cost of chip production.

Advantages over Nvidia, AMD and Qualcomm

Nvidia, AMD and Qualcomm are not as flexible. Despite the fact that Nvidia can charge thousands for some of its most powerful graphics chips when targeting the enterprise and machine-learning market, the wider gaming market is more sensitive to price changes. You can see that in the unrest that has existed in the gaming space as the price of graphics cards rises due to inventory going to miners rather than gamers. Neither AMD nor Nvidia will get away with selling graphic cards to partners for higher prices and, as a result, there is a potential for negative market growth in PC gaming.

If Bitmain uses the same foundry as others, and is willing to pay more for it to build their chips at a higher priority than other fabless semiconductor companies, then it could directly affect the availability and pricing for graphics chips, mobile phone processors and anything else built at those facilities. As a result, not only does the cryptocurrency market have an effect on the current graphics chip market for gamers by causing shortages, but it could also impact future chip availability if Bitmain (and its competitors) are willing to spend more for the advanced process technologies coming in 2018 and beyond.

Still, nothing is certain in the world of bitcoin and cryptocurrency. The fickle and volatile market means the profitability of Bitmain’s Antminers could be reduced, lessening the drive to pay more for chips and production. There is clearly an impact from sudden bitcoin value drops (from $20,000 to $6,000 as we see saw this month) on mining hardware sales, both graphics chip-based and ASIC-based, but measuring that and predicting it is a difficult venture.

"If Bitmain uses the same foundry as others, and is willing to pay more for it to build their chips at a higher priority than other fabless semiconductor companies, then it could directly affect the availability and pricing for graphics chips,"

AMD has a proprietary relationship with Globalfoundries to manufacture its chips. It is highly doubtful Mining demand would supplant AMD's supply chain.

As to TSMC risk compromising a long standing relationship with Nvidia to fulfill orders to supply clients in an industry known for its volatility ?

With all that up front money that AMD has paid to GlobalFoundries(GF) and that modified wafer agreement that AMD negotiated, I would think that AMD would have the least amount of problems securing access to GF's fab capacity. Now for the remainder of the non Foundry industry AMD has a less binding arrangement and that will have to be competitively obtained by AMD against any others that may bid for the available fab capacity.

AMD and GF are relatively joined at the hip until 2024 as far as capacity needs with AMD on the hook if levels are not met. So that part of any securing any GF fab capacity for AMD is more secure and maybe all that money that AMD has/has had to pay will be money well spent if the global fab cacacity becomes affected by Bitmain Technologies and others.

GF better be agressively trying to build out more capacity for AMD's needs as well as any others, and GF and IBM have commitments also. GF/IBM/Samsung all have ties with that joint foundery IP/Technology consortium of theirs that has been around for some years now.

Well, it might have the effect of reducing the leverage for some of more ruthlessly penny-pinching major buyers out there. I can't see fabs rejecting, say, Apple outright, but I can see them saying "Hey, look, we love having you as a customer. We've already prioritized your long-term business over more profitable requests from the custom crypto sector, even though it's costing us money. But there's a limit to how much money I can leave on the table when we have people clamoring to buy chips at higher margins. "

This is what happens when you give the Chinese all your tech IP to produce products for you....
I don't feel a bit sorry for Intel, AMD, etc. In their quest for immediate self monitization, they gave up long term survival....

The Chinese have done this with smart phones, PCs, currently TVs, etc.

That's Capitalism for you, Capitalism has nothing to do with democracy and all that low wages labor to be had in countries where there really are no freedoms for the workers to organise much in the way of better wages. Capitalism is working on reducing worker power in the US and that Citizens "United" highest courts declaring Corporations as people and letting the cash flow freely into the politicians' hands.

The Capitalists really love China, all that low wage labor for so many years, now moving into the rest of the main Asiatic Continent in places with even lower wage rates than China. But China graduates 750 thousand engineers every year and their wages are not as costly as the ones in the US so that makes the Capitalists very happy. Those "Communist" chinese sure have a boatload of billionaires(billions of Dollars) and they are sure some very consumerist commies at that. Oh how the American industrialists so admire the dictators and are working on making the US into such where the US is ruled over by the merchant princes!

How's that stagflation going with GPU pricing through the roof and everything costing more with even products like rolls of toiletpaper costing the same but the width of the roll shrinking and the number of squares reduced in a form of shrinkflation. Yes that bottle of dishwashing detergent cost the same but it's gotten smaller in size over the years when inflation was supposed to be nonexistent.

But gamers love their monopolies as long as the IPC and the frame rates earn the gamers their desired amounts sycophancy from their fellow gaming buddies. And now the coin miners are wanting GPUs more for that little tulip mania of hashing for ether-coin hash-cash. And don't worry gamers if China tries to force its way then you will be the first to feed that cannons as that's really what the consumer is destined for eternally under both Capitalism and that Communism that unchecked Crony Capitalism gave birth to in the first place.

Gamers should be the first conscripted and the ones to spend the most time out on the front lines when the merchant princes go to war with each other. Gamers should only be given the barest essentials like fatigues and world war one era bolt action carbines and be told to improvise. The Capitalist will most definitely only be concerned about the good investors of Amalgamated Bodybags and their wartime earnings potential, ditto for those $300 hammers that only cost $3 to make, and the rest of the overpriced gear of war etc.

Plenty of US and Chinese/other gamers to fill the ranks and feed the hungry cannons when the egomaniac Merchent Princes go at each other over their markets and market influnce around the globe in uber high resoultion reality with no chances for the gamers to respawn once the projectiles have done their handywork.

well said. Sadly, it applies not just to Joe Gamer, but to the average indifferent citizen. Whats really sad is that history is set to have its way yet again and the sheep will shear in coming antagonisms.

The BM1397 die size is between 12mm^2 and 20mm^2. Let's takle 15mm^2 as a nice round estimate. An Antminer S9 has 189 of these dies, so a single Antminer 'eats' 2835mm^2 of wafer, for retail of $2400 (supply is limited so the aftermarket price is as inflated as GPU price). For comparison, the $3000 Titan V's GV100 has a monolithic die area of 815mm^2. Even with the yeild advantage of having many smaller dies and not having to deal with an interposer or HBM bonding, Bitmain are not commanding the margins Nvidia are for their top-end dies. For something like the 1080Ti (GP102 471mm^2, $700 RRP) it's still got nearly double the profit margin.

Admittedly Nvidia have a lot more R&D overhead compared to Bitmain, but it's jot like Nvidia don't have the margins to push their orders up the fab queue.

AMD and GF until 2024 for "exclusivity" and that's just all part of that AMD/GF foundry spinoff process that started a good while back. So while it has cost AMD a lot to renegotiate short term permissions from GF to use other founderies for AMD, AMD does have a contractural lock-in on GF's fab capacity and that's a good thing to have considering this Bitmain news.

Also as long as AMD is going to be the pilot user of GF's latest processes then that relatonship will probably continue after 2024 also. AMD and GF go way back in that way even with GF being fully spunoff from AMD.

AMD/Nvidia have not as much to worry about in getting and keeping long term relationships with any of their foundry partners as the coin market is not a market with a long enough history compared to the traditional Foundry Customers that have decades of being in business. Traditional customers with farily stable and continous Foundry Capacity needs are what the foundries value most. The Big Foundry Companies value that long term stability more than any potentially short term gains that may damage the their long term client relationships.